Soak cashews in hot milk for 10 minutes. Grind to a smooth paste and set aside.
Heat 1.5 tbsp oil and 2 tsp butter in a pan. Add bay leaf, cardamom, clove, cinnamon, peppercorn and fry for 30 seconds.
Add onions, little salt and fry till the onions turn light brown. Then add ginger-garlic and fry till raw smell goes.
Now add turmeric powder, cumin powder, coriander powder, red chilly powder and fry till raw smell of masala goes.
Then add tomatoes, tomato paste, sugar and salt. Mix and cook the tomatoes for 7 to 8 minutes. Remove from heat and allow to cool.
Once it is cooled, grind the onion-tomato mixture with curd to a smooth paste.
Heat pan and add rest of oil and butter. Add the ground paste, cashew paste and 1/2 cup water and mix well. Cook for 4-5 minutes.
Then add cream, garam masala, kasuri methi and cook for 1-2 minutes. Then add paneer and simmer in the gravy for 5-6 minutes.